GST on reimbursement of expenses

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When a company recovers transportation costs from a customer, it's generally considered part of the supply's value, not a pure reimbursement. This means GST must be charged on the recovered amount, typically via a debit note, and reported in your tax returns. Simply crediting the expense ledger without issuing a GST-compliant document can lead to penalties and interest.

Shraddha online

Shraddha

(Querist)

12 November 2026 Hello Experts,
Company has asked customer to reimburse the transportation cost without GST in Mar-26. In books transportation cost booked under indirect exps and RCM paid on it. Meantime follow up was going on for the reimbursement, in this month customer reimbursed the money without GST. Can I show this amount credit side of transportation cost ledger and debit to customer as below:

1: ABC a/c ....Dr 1L
To Transportation cost 1L

2: Bank A/c ...Dr 1L
To ABC a/c 1L

Is it allowable if reimbursement done without debit note or invoice as we have not taken GST only cost is recovered, supporting of transportation is available.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

12 November 2026 No - the amount recovered is consideration for a supply, so GST must be charged on it through a debit note (or tax invoice); it cannot be recovered "cost only" without a GST document.

1. Not a pure-agent reimbursement: The company itself engaged the transporter, booked the freight as its own expense and paid GST under RCM as recipient of the GTA service. Rule 33 of the CGST Rules excludes an expense from value only where the supplier pays the third party as a pure agent on the recipient's authorisation, shows it separately in the invoice and does not use the service for its own interest. Those conditions are not met here.

2. Value of supply: Under Section 15(2)(c) of the CGST Act, any amount charged by the supplier for anything done in respect of the supply at or before delivery forms part of the value. The freight recovered therefore increases the value of the March 2026 goods supply and attracts GST at the rate applicable to those goods.

3. Document and return: Issue a debit note under Section 34(3) and report it in GSTR-1 and GSTR-3B of the month in which it is issued (Section 34(4)). Since the customer has paid Rs 1 lakh without GST, either collect GST additionally (preferable, as the customer can take ITC on the debit note) or treat Rs 1 lakh as tax-inclusive and pay GST on the back-calculated value.

4. Accounting: Customer A/c Dr (value + GST) To Transportation cost / Freight recovered (value) To Output CGST/SGST or IGST (tax); then Bank Dr To Customer. Crediting the transport expense ledger is acceptable presentation. The RCM already paid and the ITC on it are not affected.

5. Risk of no document: The recovery remains an unreported taxable supply. On scrutiny or audit, tax can be demanded with interest under Section 50 and penalty under Section 73/74, and the customer gets no ITC.

Overall Summary: Because the company was the recipient of the transport service, recovering the freight from the customer is part of the value of its own supply, not a pure-agent reimbursement. Issue a Section 34(3) debit note with GST, report it in the current month's returns and pass the entry with output tax rather than simply crediting the expense.

Shraddha online

Shraddha

(Querist)

12 November 2026 At what rate GST 5% or 18%

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